Management Control Systems (2nd Edition)

Management Control of Research and Development : Overview

National culture and organizational culture have a significant impact on R&D and innovation respectively. The R&D function is characterized by three structures: production structure - tasks, cooperation, and conflicts; control structure - autonomy, decision making, and leadership; and employee relationship - reward and appraisal systems. These structures are influenced by factors like the type of research undertaken - basic research, applied research, or development; and nature of the R&D processes - task uncertainty, task interdependence, and size. These structures are also influenced by the national culture. National culture is described through the following dimensions: power distance, uncertainty avoidance, masculinity/femininity, and individualism/collectivism. R&D personnel from national cultures that rank high on power distance and uncertainty avoidance tend to prefer less autonomy and strong leadership, accompanied by appropriate reward and appraisal systems. On the other hand, those from a national culture ranking low on power distance and uncertainty avoidance and high on femininity prefer greater autonomy and decision-making authority. They also prefer a leadership which is nurturing and not dominating. This seems to foster higher creativity and innovation.

Instead of adopting formal controls, a more effective method of managing innovation would be through the organizational culture. Organizations successful in making the employees feel like family or imbuing a sense of belonging in the employees usually score higher on innovation as against organizations that use formal methods of control. To create goal directed communities, the top management sets the objectives for the employees but the means to achieve the objectives are decided by the employees themselves. To help enhance innovativeness, organizations should ensure balanced autonomy, a proper integration of technical skills and teamwork, and personalized recognition/reward systems.

Performance measurement is particularly difficult for the R&D function because it is a complex process which is rapidly and continuously changing. The 'routineness' of R&D tasks can be assessed on the basis of two parameters: 'task analyzability', that is, the presence or absence of standard methods for performing the activities; and 'number of exceptions', that is, the level of diversity in the activities present. As R&D tasks are less 'routine', behavioral and personnel controls are more suited to R&D than financial controls. If the link between inputs and outputs is clear and the number of exceptions is less, behavioral controls may be used. When the task analyzability is low and the number of exceptions is high, personnel controls - also known as clan controls or social controls - are more suitable.

The R&D function may be viewed as a system consisting of inputs, the processing system, outputs, the receiving system, outcomes, and the interactions between them. The reasons for the failure of R&D measurement systems are: focus on internal measurements, difficulty in separating the R&D contributions to profit, extensive use of qualitative measures, etc. The performance measurement system should be designed after taking all these issues into consideration. In addition to internal and external measurements, it is important to measure technical progress, timeliness, and costs.

Measuring effectiveness involves finding out those aspects in R&D that need to be measured with a proper measurement system. A framework has to be created that considers ten different R&D activities and the levels of effectiveness of the R&D function (from level 0 to level 5) in each of these activities.

The value of R&D as strategic infrastructure can be judged based on parameters such as inimitability, durability, appropriability, substitutability, and competitive superiority. The monetary value of the ongoing R&D projects can be arrived at by calculating the net cash flows for two different time periods - from the beginning of the R&D project to its end, and from the beginning of the utilization of the R&D outputs to the end of the forecasted economic life of the project.

Conducting an R&D audit is one of the ways of monitoring and controlling an organization's research and development activities. The R&D audit would typically cover issues such as alignment of R&D objectives with the overall objectives of the organization, budget allocation, expense tracking, recruitment of competent personnel, treatment of commercially unviable projects, coordination of R&D activities with concerned departments, and availability of necessary inputs and equipments.

Management control of new product development is done through tools/techniques such as the Stage-Gate™ framework, the balanced scorecard, and concurrent engineering. The Stage-Gate™ framework has six stages, each representing a set of activities that are included as a part of the new product development project. These stages incorporate aspects such as customer preferences, quality of product, and product-market fit. The gates in the framework are the points at which the project is evaluated for quality through a stringent reviewing process. They help in differentiating between valuable and less valuable projects.

The integration of the balanced scorecard with the R&D activities starts with the process of deciding the strategic indicators for the organization. The metrics are selected in such a way that they match the strategic objectives of the organizations. Concurrent engineering covers a wide array of strategic, process, technological, and organizational integration methods that bring about better collaboration between the R&D, manufacturing, and marketing functions.

Chapter 15 : Overview